Do department chairs have real effects?

Apparently we do:

"There is one robust predictor of a department’s future research output. After adjustment for a range of personal and institutional characteristics, departmental research productivity improves when the incoming department Chair’s publications are highly cited."

Consumption taxation is not that regressive

It is a fact of life that governments need revenue. How to get this revenue without hurting the economy too much has been the topic of much research. Quite obviously, you first want to tax activities that are optimally discouraged, such as smoking and polluting. But that is not sufficient. You do not want to depress the labor supply and thus you want to avoid taking labor income. The alternative is taxing consumption, which you indeed want to discourage in favor of investment, but a consumption tax is deemed regressive and unfair: it hurts proportionally more the poor than the rich.

Nico Pestel and Eric Sommer claim that this perception may only hold in the short-term. Indeed, they find the standard result that a revenue-neutral switching from labor income tax to value-added tax is regressive in the short run. This seems to reverse itself in the longer run, though, thanks to a shift in the labor supply. Using a model estimated on German data, they highlight that the ones responding the most to the reduction in the wage taxation are indeed the poorest, and their response overcomes the progressivity of the income tax. The key here is also reducing payroll taxes which seem to be very discouraging for low income workers.

A Summer Opportunity...

...for graduate students with an interest in matching theory, especially as applied to market design. Click here to learn more.

Lampooning PRC 'Non-Interference' in South Sudan

Does China side with President Salva Kiir or Rick Machar? Both? Neither?

 Us folks working in development studies are simply fascinated by the mysterious foreign aid activities of China. Unlike rich countries which are members of the OECD Development Assistance Committee (DAC) and disclose who receives their aid, for which projects and in what amount, China does not feel an obligation to do so. A few years ago now, China released a white paper on foreign aid that gave a fleeting glimpse of its aid practices, albeit without disclosing how much it has actually provided over the years and much more.

China's practices do not really qualify as "official development aid" in the Western OECD sense. As AidData noted:

Chinese foreign aid has long been a subject of scrutiny and controversy. It doesn’t easily fit into the OECD’s definition of Official Development Assistance (ODA). Much is financed through the China Eximbank in the form of concessional loans that directly support Chinese economic interests, and carried out by embassies and consulates rather than development agencies. Most importantly, project-level data on Chinese aid is essentially non-existent

Such lack of transparency and emphasis on extractive industries in places alike the African continent occasions much hand-wringing. The cartoon above lampoons China on two of its main selling points to the rest of the world: (1) its non-interference in the internal affairs of other countries and (2) its status as a developing country alike them. South Sudan's early post-independence years are turning out to be tumultuous indeed, with political factions fighting in what remains an exceedingly poor country despite its vast energy reserves.

As is often the case, the countries that can least afford such unproductive conflicts often engage in them. The cartoon asks us, is China making the situation in South Sudan worse because of its indifference to politics for as long as it gets its cut of energy supplies? You can argue that China is caught in the midst of someone else's conflict it has played little part in fostering. OTOH, its indifference combined with a generous dole out to those willing to support its energy extraction needs may literally be fueling the conflict. At any rate, the current conflict crimping its supply is urging it to mediate to some extent between the two sides--both of which whose favor it has courted before.

There are no easy answers. All the same, China should be increasingly mindful about how Africans are portraying its activities as in the cartoon above.

Secrets of Orlando's 'Harry Potter' Theme Park Success

You needn't be a movie star to enjoy Butterbeer,; just head to Orlando FL

Here's another example of the fallibility of what you read on the Internet--this time from, er, me. Three years ago, I thought that the development of a Harry Potter theme park in Orlando, Florida based on the world-conquering series of books and cinematographic adaptations was a bad idea. Why? Simply put, it deals with location, location, location. If the series were set in a sunny and humid climate where the protagonists wore beach shorts and flip-flops all the time, then there would be no problem. As it is, however, the series is set in a dark, dank, and damp England.

So, kudos are due to Universal Studios since things have turned out very well. They took risks and have been handsomely rewarded. All the same, the secret weapon behind its success is an unlikely one: Harry Potter happens in a virtual (non-existent) space you must reach by boarding a fictional train. However, the evocative appeal of hypothetical foodstuffs being served in this realm have long attracted attention from fans and foodies alike. Use "Harry Potter cookbook" for your search terms on Amazon and knock yourselves out. As it so happens, much of Universal's financial success has to do with being authentic--in spirit at least--to foodstuffs from the movie.

For the first time ever, we have an excerpt from Tourist Attractions & Parks magazine on food theming:

Yet, despite these three different [ride] thrills, the real story behind the success of Universal’s Harry Potter world centers around the less publicized but higher profit food, beverage, and merchandise operations that seem to have cast an irresistible spell on guests and their pocket books...

According to Brent Young, the president of Super 78, a visual solutions company with deep roots in the theme park industry, “it is well known in the creative community that theming food and beverage creates a consistent guest experience and park attendees are much more likely to want to interact with the themed environment in a real way.” This is what makes the food and beverage operations at the Wizarding World even more impressive:  Universal was able to take an existing concept, themed dining, and transform it into part of the overall “storyline” while still making mounds of money in the process.

Take, for instance, "butterbeer":

Up until the Wizarding World debuted, the fascinating drinks and meals that Rowling created in Harry’s World had been intricately described by the author but never really tasted.  After all, these dishes and beverages never actually exist beyond the pages of the novels [but see my rejoinder above on unofficial themed cookbooks].  This meant that, in developing the culinary side of Harry Potter’s world, Universal had to transform fictional items to real-world tastes.

An easy and less expensive route could have been to de-emphasize the culinary authenticity of that part of the Wizarding World.  Sources close to the project, though, explain that [series author J.K.] Rowling would have none of this.  Her dictate was that all aspects, not just the attractions and physical buildings, must transport the guest into Harry’s world.

As a result, Universal spent large amounts of time and money to refine the recipe for the iconic Butterbeer beverage from the Potter novels.  Numerous recipes and taste tests were held to refine every aspect from the first sip to the final aftertaste.  This was all done to insure that Butterbeer was not too sweet nor too bitter, not too syrupy nor too watery.  Not too everything nor too everything else but instead the perfect replication of a heretofore fictional drink.

The end product was one of the amusement industry’s most expensively designed beverages ever, and, according to these same sources, one of the most financially successful ones ever.  Indeed, this investment has yielded amazing revenue for Universal, more so than even their most optimistic expectations.

As far as I can tell, the shortcomings of the Orlando climate in mimicking that of England are more than made up for in the minds of punters (Brit-speak for paying customers) by authenticity to fictional foodstuffs. They stand in line for minutes and are more than happy to do so. Go figure; I guess there are good reasons why I'm not in the theme park business.

Uncertain times and price setting

Much has been written, including here, about how policy uncertainty is bad for business. Firms do not want to invest much when it is not clear what lies ahead in terms of fiscal policy, for example. This is particularly bad in countries where such uncertainty is chronic. If fiscal authorities or the government cannot get their act together, maybe the central bank can.

Isaac Baley and Julio Blanco show that if firms face uncertainty, monetary policy has less bite. The reason lies in the endogenous price formation (no Calvo fairy here). Specifically, firms are modeled to forecast their nominal costs, but the learning process is obviously imperfect. As the forecast variance increases, for example due to uncertainty about after tax returns, firms become more sensitive to new information and adjust prices more frequently, paying a menu cost. This effect is stronger than their urge to wait-and-see in the face of uncertainty. All this accelerates the transmission of information about the monetary policy, further dampening its impact. In other words, an ineffective government renders the central bank less effective as well.

So Long, Asia: Africa is Now Fastest-Growing Continent

At  midyear 2013, IMF bloggers declared Africa to be the second-fastest growing region in the world after (developing) Asia. Fast-forward a couple of months and it now has the distinction of being the world's fastest-growing region outright. Given that Africa has unfortunately lagged behind other regions in terms of growth during the past few decades, this occurrence is a welcome one, and this Asian certainly bears no grudges in seeing our African peers outperforming. Well done!

However, this distinction being bestowed by the African Development Bank, the AfDB unsurprisingly asks for more of the "good governance" agenda it has championed for quite some time alike its other regional development bank counterparts as well as the World Bank. It is still very much in vogue in development circles:

Africa is now the fastest growing continent in the world, the African Development Bank’s Annual Development Effectiveness Review 2013 [ADER] states. The report, just published, says this growth has been driven mainly by improved economic governance on the continent and the private sector. “Africa’s economic growth could not have happened without major improvement in economic governance.

More than two-thirds of the continent has registered overall improvement in the quality of economic governance in recent years, with increased capacity to deliver economic opportunity and basic services,” it says. 

What kinds of improvements in governance are we talking about here? The AfDB centers on another chestnut of these institutions, the ease of doing business. Instead of having to pay bribes to various officials working in different government agencies to start up a (formal) business, African nations are supposedly reducing such opportunities for petty corruption and making it easier for entrepreneurs to get started:

The report says the costs of starting a business, for instance, have fallen by more than two-thirds over the past seven years, while delays for starting a business have been halved. It says the private sector has become the main engine of growth as the continent continues to improve its business climate. This growth is increasingly driven by internal demand.

“This progress has brought increased levels of trade and investment, with the annual rate of foreign investment increasing fivefold since 2000. For the future, improvements in such areas as access to finance and quality of infrastructure should help improve Africa’s global competitiveness,” the report states.

Better yet, the growth seen in recent times should continue into the medium term:

According to the ADER, growth in the continent’s low-income countries exceeded 4.5 per cent in 2012 and is forecast to remain at above 5.5 in the next few years. Africa’s collective gross domestic product (GDP) reached US $953 while the number of middle income countries on the continent rose to 26, out of a total of 54.

“Strong economic growth has made major inroads into income poverty. The share of the population living below the poverty line has fallen from 51 per cent to 39 per cent. Some 350 million Africans now earn between US $2 and US $20 a day, and the middle class is increasingly becoming an active consumer market,” the report says.

Some good news amidst doom and gloom in the developed world.